How to Write Operations and Management Plan

The operations and management plan deals with day-to-day planning and managing the business operations. It is designed to describe that how the management operations will work on continue basis. A good operations management plan always highlights the logistics of the small businesses that includes the various authorities and responsibilities of the management team, the tasks assigned to the firm’s each department, the capital expenditures requirements to run the business operations.

In this section, you will need to create the financial tables of theoperations and management plan. Three types of tables, you will need to create such as the table of

Operating Expenses

Capital Requirements

Costs of Goods

The sum value of these tables will be carried forward in the “financial plan” – the last part of thestartup business plan.

The operations and management plan is further categorized into two sub-sections. The first section will be related to the business structure, while the second one will be on capital/expense requirements of your business.

Operations and Management Plan of your Business Plan

1). Business Structure (Operating Expense Table)

Developing a business structure is an important part of every startup business plan. Investors usually pay attention to the organizational structure, because it provides the operating expenses projections. These projected expenses are also the critical part of the financial statements. That’s why, the business structure should be well-defined and developed properly.

The organizational structure of every business varies from one another, but traditionally businesses often divided into the following broader areas.

Accounting and Finance

Marketing and Sales

Administration

R & D

It is worth to mention here that the nature of the businesses differ from each other so every business usually develops its own organizational structure according to its requirements.

To create a well-defined business structure, you need to go through from 5 stages.

Create a list of tasks that need to be done.

Divide these tasks into relevant departments.

Determine the type of skills which are required to perform each task.

Find the right employee which has the certain skills as determined in stage 3.

To generate revenues within the firm, you need to establish the functions of each task.

Ok, now luckily you’ve got the main points on “how to develop an organizational structure?” The next step is to find the skilled persons (employees) that will help your business to achieve the pre-determined goals.

To determine the number of employees you need to accomplish your goals, the following equation will help you to find the right numbers of employees that you need to hire in your departments.

Total Numbers of Customers ÷ Total Numbers of Customers that will be served by each customer = Total Numbers of Employees/Personnel or (C ÷ S = P)

Let suppose, 20 thousand customers will get services from your marketing department and 150 customers will be served by each employee than approximately you need to hire 133 employees.

Once you determined, the total number of employees you need. The next step is to calculate the labor expenses. While calculating the labor expenses, you should keep in mind that the labor skills and personnel requirements also vary from each other, so the salaries of employees will also be different from each other.

For your convenience, let’s say you need to hire 133 employees in your marketing department and the salaries of employees will be identical. Following equation will help to calculate the labor expenses.

Once you will successfully develop your business structure, then you can easily calculate your overhead expenses, which will be associated with your business operations. Overhead expenses are also known as indirect/non-labor expenses. Some overhead examples are utility bills, travel, promotion and advertising expenses etc.

These overhead expenses are further classified as

Fixed Expenses (Remains same regardless of the business volume)

Variable Expenses (Changes with respect to business volume)

2). Overheads (Capital Requirement and Cost of Goods Table)

In overheads section, you need to develop two tables such as expense table and capital requirement table.

To calculate the OH expenses (overheads) in expense table, you need to multiple your workers’ strength with expense on each worker. In this way, you will get the total overhead expense figure. Here is the equation.

O.H = N.W × E.W

Apart from the expense table, you will also need to develop capital requirement table. In this table, you need to assess the money that will be used to purchase equipment/machines to run the business operations. Later, you will also have to calculate the equipments’ depreciation expenses in capital requirement table.

In capital requirement table, there will be lots of elements that will require capital investment. Identify them and put these elements in capital requirement table.

Note down that capital requirement table will entirely depend on business nature. If your business is offering services then the capital is tied with business equipments that will be used to provide services to customers.

On the other hand, if you are going to start a manufacturing business then you will have to purchase manufacturing equipments. These equipments will further produce/manufacture other products.

Basically, there are three types of equipments falls in manufacturing businesses, such as

Testing equipment

Assembly equipment

Packaging equipment

At the same time, you also need to check that how many customers/unites will be served or handled by each equipment. It is very important because capital requirements are the product of income and it is produced through sales unit. Businesses usually spend more money to increase the production of units. More production means more chances of meeting the sales projections. Capital requirement is basically associated with the projected sales as mentioned earlier in the revenue model.

For example: if equipment handles/serves 2000 customers at avg. sales of $25 then the sales will be $50,000.

If you spend more money in production to produce/serve more units or customers then the chances of sales will be increased. But at the same time, you will face another factor in capital requirement and that is equipment cost. To calculate the cost, you need to multiply the numbers of customers with equipment cost. In this way, you will get the capital requirement of specific equipment. To check the capital requirement, you can use the following equation:

C.R = [(S÷N.C) ×A.S] × C.C

i.e. C.R = Capital Requirement

S = Sales supported by each equipment

N.C = Numbers of Customers

A.S = Average Sales

C.C = Capital Cost

The C.R table will be developed by adding all the equipments elements to generate total new capital (T.N.C) for the year.

In the first year, the total capital requirement (T.C.R) is equal to the total new capital (T.N.C). But in later years, the other factors will be included such as plus total capital and depreciation. It means the T.C.R will be equally to the sum of total new capital, plus total capital (P.T.C) and less depreciation. The capital requirement model equation would looks alike:

First Year, T.C.R = T.N.C

For Successive years,

T.C.R = T.N.C + P.T.C – Depreciation

It is important to mention here that depreciation is an expense which will be incurred after the use of equipment. With the passage of time, the depreciation will also decrease the equipment value until the equipment will go in scrape. There are different methods used in businesses to record the depreciation expenses. Basically these are also known as depreciation schedules. Some of the famous methods are as follow:

Straight Line Method

Diminishing Method

MACRS etc.

So, it is highly recommend to you that when you are going to choose the schedule be careful and select the one that best fits your small business. You should keep in mind that deprecation factor is also used while calculating tax deductions and Cash flows for new capital. To choose the best depreciation schedule, you should consult this matter with business expert and ask him/her which one is best for your business.

At the end of the operations and management section, you will need to generate the cost of goods table. This table is usually used in businesses when the purchased products are places in inventory section. Keep in mind that the meaning of all cost of sales, cost of goods sold, inventory cost or the purchase of products for resale is same. When the product is not yet sold then it remains in inventory section but when it is sold out to the customers then it is referred as cost of goods sold.

Let’s say, if you are going to start a manufacturing business then the cost, which will be incurred while manufacturing the products, will be termed as cost of goods. Cost of goods will further categorized into three elements such as

Material

Labor

Overheads

The cost of goods always accounted in the business operations because it is an important tool to measure the business profitability for the income statement and cash flow statement.

While generating the income statement, you should check that which inventory is in manufacturing process and which is sold out. This is important because it can affect the income statement and balance sheet of your startup business.

Developing cost of goods table is one of the complicated tables of operations and management section that you will create in your startup business plan. It is an important part because it shows the inventory flow in your business operations, the rate at which your inventory is turned and the assets placement within the firm.

To successfully generate the cost of goods table in operations and management plan, you will need to do some market research and find the information about the current labor hours and material cost per unit. After that, you also need to predict that how many units your business will sell for that year. Additionally, you also need to know about the percentage of units which are ready to sale, the percentage of units which are in manufacturing process and the percentage of units which are still placed in inventory section as raw material.

Keep in mind that these figures greatly rely on the equipment capacity and inventory control system, which you will develop in your small business. At the same time, you also need to know that at what time/stage the majority of workers is performed.

Last words

To cut the long story short, all you need to download the operations plan template for your business plan. Fill the operations plan template with your projected figures with the help of above mentioned guidelines and that’s it.

The next and last part of business plan is financial section. Read that article and complete your startup business plan 🙂

About the author

Adil Zaman is a business and finance major. He loves to write on small business and tech trends. He cares about human rights, international relations, and loves tourism. In spare time, he usually reads business articles and watches movies.

ABOUT

Fincyte is an exciting digital platform dedicated to business professionals. Our digital magazine provides our valued readers with relevant information, insights and analysis of latest small business trends.

Our mission is “To Help The Small Businesses Grow” by regular sharing of interesting and meaningful content with relevant readers.